Value Chain Expansion And China’s Foreign Direct Investment In Japanese Service Economies

Chinese and other emerging economy outbound foreign direct investment(FDI)has received much attention from scholars over the previous years due to its seemingly incongruous characteristics when compared to traditional developed country FDI.First and foremost was the absence of so-called ownership advantages identified by John Dunning’s eclectic paradigm of international investment,which posited that companies engaging in FDI must have unique advantages allowing them to gain a competitive edge over local host country contenders.Many Chinese investments in manufacturing sectors recently have clearly displayed new patterns of expansion,including using FDI as a method through which to gain access to strategic resources that would then allow them to compete both at home and abroad.Furthermore,some scholars,led by John Mathews,argued that the eclectic paradigm was no longer relevant in explaining the methods of rapid international expansion by newcomer firms.In light of this,Mathews developed his own theory of expansion called linkage,leverage,and learning(LLL)which instead emphasized the importance of strategic partnerships between the investing company and firms in the host country.This thesis further explores the intersections and distinctions between these two theories in the context of Chinese service investment to Japan.China’s service sectors are considerably less developed than its manufacturing sectors,and yet the author argues that it is still possible to understand outbound service investment to Japan through the eclectic paradigm framework.Specifically,the author explores the case of Spring Airs’ successful establishment of a low-cost carrier in Japan and its further expansion into Japan’s hotel industry.These strategic investments have occurred in the context of the rise of China’s middle class,and with it a rapidly growing entertainment and travel industry.Since its establishment in the 1980s,Spring Travel has shown great foresight in developing package tours,forging alliances with China’s large passenger airlines,founding the first low-cost carrier in China,and expanding overseas in high growth markets.These strategies have continually distinguished Spring Travel from its competitors and attracted attention in business and management literature.On the basis of Spring Airlines and other investments at the intersection of Japan’s real estate and tourism industry,the author demonstrates how Chinese companies have leveraged strong brand recognition and experienced knowledge of their customer base to carry out successful expansion overseas.This reflects the changing structure of China’s economy and forecasts future changes to come in the makeup of China’s FDI.Furthermore,the author explores how Mathews’ emphasis on strategic partnerships can be reconciled with Dunning’s theory of ownership advantages by using value chain analysis.Spring Travel’s partnerships with local Japanese tour agencies and hotel operators allowed it to take advantage of Japan’s low risk investment environment,with the future goal of using this experience to expand into the hotel industry in China’s domestic market.Although value chain models must be adapted to suit different service sectors,similar patterns of value chain expansion emerge in other cases of Chinese service industry investment in Japan.In the future,these patterns could be explored through empirical analysis as data becomes available.